If your Directors and Officers (D&O) insurance policy is renewing soon, you may need to brace for a rate increase. Commercial insurance rates are going up across the board, but certain lines, including D&O, are seeing double digit increases. You may also notice stricter underwriting and more exclusions. Don’t get caught off guard by the current market trends; educate yourself now.
How Much Are D&O Rates Increasing?
According to the MarketScout Market Barometer, commercial lines were up 7% in the first quarter of 2021, and D&O lines were up 11.6%.
Some companies can expect even sharper rate increases. According to USI’s 2020 to 2021 Commercial Property & Casualty Market Outlook, public companies may expect D&O rate increases of 20% to 100% in the Quarter 4 2020 to 2021 forecast. Private companies and nonprofits may see increases of 10% to 60%.
Why Are D&O Rates Increasing?
Right now, many people are talking about a hard insurance market, meaning that rates are increasing while capacity is shrinking. The surge in D&O rates is part of this larger trend. However, D&O rates are increasing at a steeper rate than most other lines, so other factors must also be a play. These factors include securities activity, COVID-19, anti-harassment and discrimination movements and cyberattacks.
On the surface, some of these contributing factors may not seem like D&O exposures, but they have become D&O concerns as boards are now being sued for their failure provide leadership in key areas that affect the profitability of their companies.
According to Cornerstone Research, securities class actions filings dropped to 334 in 2020. This is the first time the number has been below 400 since 2016, and the pandemic’s impact on the courts appears to be the reason. Nevertheless, the number of filings is still above the 1997 to 2019 average, and several “mega filings” meant that the market capitalization losses were similar to the recent levels seen over the last three years.
The core filings included four cybersecurity cases, one opioid case, one sexual misconduct case, six cannabis cases, seven SPAC cases, 11 cryptocurrency cases and 19 COVID-19 cases.
It is hard to discuss current trends for anything without discussing COVID-19. The pandemic has created a fast-changing environment in which companies have had to make important decisions regarding business operations and safety based on information that at times seems to change daily. As the breakdown of core filings from 2020 shows, COVID-related cases have increased.
According to Property Casualty 360, some D&O claims stem from allegations of inadequate health and safety measures to prevent the spread of COVID-19, while other claims occur when shareholders believe a company has downplayed COVID-19’s impact on business or failed to inform shareholders of the pandemic’s impact.
Anti-Harassment and Discrimination Movements
In the last few years, social movements have brought the issues of sexual harassment and racial discrimination under the microscope. First, an increase in lawsuits alleging sexual harassment followed the #MeToo movement, according to the EEOC. Now, the Black Lives Matter movement and related protests are putting the spotlight on racial discrimination.
Companies must also navigate legislative changes that could open the door for more lawsuits in the future. In California, for example, new laws require publicly held companies with principal executive offices in California to include female directors and directors from underrepresented communities on their boards.
According to Cyber Florida at the University of South Florida, researchers identified a 715% increase in ransomware attacks in 2020.
The shift to remote work may have provided hackers with new vulnerabilities to exploit. In addition to ransomware, businesses have also had to deal with phishing attacks, business email compromise schemes and other types of cyberattacks.
The rise in cyberattacks may contribute to an increase in D&O rates as well as an increase in cyber exclusions in D&O policies.
Boards must play an important role in protecting against cyberattacks at their companies. Failure to provide leadership can result in D&O lawsuits.
D&O Insurance Guidance
Wilson, Washburn & Forster is a boutique independent insurance agency that has been in business since 1961. We have expertise and connections in the D&O insurance sector and can also help customize the right mix of coverage to protect against the unique exposures of your business. You will find that our experience, claims handling, service, and community commitment is unrivaled.
Contact us today at 786-454-8384 for a complimentary analysis of your current insurance program by an insurance specialist in this field.